Maricopa County rental-property owners lose tax breaks

About 4,700 rental-property owners in Maricopa County who were improperly receiving a homeowners' tax credit no longer are getting the state subsidy.

The Maricopa County Assessor's Office removed the tax break of about $200 per property this past summer after an Arizona Republic investigation published May 2 found the county had improperly provided property-tax rebates to owners of multiple residences, including apartments and rental homes.

It is illegal for rental homes or apartments to receive the rebate, which is designated for owner-occupied properties.

Assessor Keith Russell estimates that having the homes properly classified as rental properties instead of owner-occupied saved the $8.5 billion state general fund roughly $940,000 so far this calendar year. Arizona for three decades has taken money from its general fund to provide an owner-occupied property-tax rebate to cover part of a homeowner's taxes for local schools. The rebate is largely unknown to many who receive it.

Following The Republic's investigation, the Assessor's Office contacted close to 9,000 property owners whose homes were possibly misclassified. More than half were changed. The rest remained the same because the owners were able to prove the homes were occupied by their owners.

The newspaper found credits were being given to a time-share operation, an individual who listed his address at a Valley resort, and even a California company that specializes in debt collection and buying distressed homes.

Russell said his office has annually tried to contact property owners to make sure homes are properly classified, but records from his office show the efforts significantly increased following the paper's findings.

"We are trying to improve the way the business process operates, and we are getting a little better each year," Russell said.

Russell said part of the problem is that the law gives properties, by default, the owner-occupied credit. It is then up to the owners to notify the county if homes are being rented. The state average for the credit is $228.

Russell said most of the homes that were changed were apartments or condominiums, which are smaller than houses and have a lower value. The average credit for those properties was around $200. The maximum credit is $600 per home.

Russell said he was part of an 18-member committee that will provide recommendations to the 2011 Arizona Legislature to make changes to the state's property-tax system.

He said one likely recommendation will be to quit the default classification of properties as owner-occupied and instead require owners to sign affidavits that say they occupy the property.